SEC Vs. Kraken Lawsuit Sets Dangerous Precedent and Should Be Dismissed

Representatives from cryptocurrency exchange Kraken filed a motion to dismiss the lawsuit brought forth by the U.S. Securities and Exchange Commission (SEC). They contend that it exceeds the agency’s jurisdiction and sets a dangerous precedent.

Kraken’s lawyers submitted a motion in the U.S. District Court for the Northern District of California to dismiss the case opened against the company by the SEC last November.

After filing the official document, the company’s blog published a cover letter. In it, representatives accused the SEC of politically motivated litigation against the crypto exchange. They asserted that the SEC’s lawsuit stemmed from a speech delivered by Marco Santori, Kraken’s Chief Legal Officer, to the U.S. House of Representatives in May 2023. In the speech, Santori criticized the SEC’s regulatory approach to the crypto market. Kraken claims that legal threats from the agency ensued the very next day.

Kraken’s legal team argues that the lawsuit against the company could set a dangerous precedent by giving the SEC boundless authority over the crypto market. They believe that the regulator’s claims hinge on the presumption of an investment contract devoid of post-sale obligations or interaction between the issuer and the buyer. If the court proceeds with the case against Kraken, the SEC could potentially file similar lawsuits against any companies trading digital assets. Kraken’s lawyers suggest that the SEC could just as easily implicate sellers of collectible sports cards, expensive watches, or diamonds for violating securities laws.

In the motion to dismiss, Kraken’s legal representatives also petition the court to reconsider the definition of assets falling under the purview of securities and the SEC’s regulation. They highlight that the current definition employed by the regulator implies that the sale of any assets for speculative purposes constitutes securitization, a notion unsupported by the Securities Act.

Previously, lawyers of Binance and Coinbase filed similar petitions, asserting that the SEC is overreaching its regulatory authority over the crypto market.

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